By ADRIAN LOWCOCK 22/07/2009
Following the collapse of Lehman Brothers the flow of lending came to an abrupt halt, interest rates were slashed and the banks offering the best deposit rates disappeared. With the first anniversary of the collapse approaching we are now entering a period where great fixed rates on cash investments are coming to an end.
Since the collapse of Lehman Brothers rates have tumbled. Currently the average Cash ISA rate is now just 0.41%* and does not offer the same returns it once did. As a result increasing number of savers are being forced to look elsewhere for their income. However, with those higher returns there is a greater risk and investors should consider the implications before they act.
Rainy day funds
It is important for everyone to have instant access to their cash in case of emergencies or unforeseen expenses. Cash ISAs allow you to have this access and there is also guarantee on the security of your capital (up to £50,000). With stocks and shares, the value of the investments can fall as well as rise and you could get back less than you invested.
Choice of investments
There are many kinds of investments which pay out an income. Some fixed income bonds are yielding as much as 5%. However, they tend to be long term accounts where the money is locked up for a number of years. Whilst the rates are appealing, we would emphasise that the rate of interest might not look so attractive in 3 or 5 years time. In the current economic climate it is difficult to forecast where interest rates will be that far ahead.
Our preferred asset class is corporate bonds as we believe they offer the best opportunity for investors who are willing to take on some, risk in exchange for better returns than cash. Economic forecasts remain pessimistic and we think any recovery will be slow and protracted. In 2008 income yields were forced up and prices down as institutions sold corporate bonds to raise money. As confidence has started to reappear, corporate bond prices have also started to recover. We are of the opinion there is still a way to go and investors are able to get an attractive income yield with the potential for capital growth.
Bestinvest recommended funds
How to transfer?
When transferring a Cash ISA, you do not lose the valuable tax wrapper. Before transferring please ensure you are aware of the risks of moving to a stocks and shares ISA.
Application forms
Please complete the form and return it to: Bestinvest, 6 Chesterfield Gardens, London W1J 5BQ and we will do the rest of the transfer for you.
You can also look at our research and all of our recommendations here.
If there is anything you wish to discuss regarding this article please call one of our advisers on 020 7189 9999 who will be able to help you.
* Bank of England